GlossaryAdvanced
Concentrated Liquidity
An AMM design letting liquidity providers focus capital within a specific price range.
Concentrated liquidity is an automated-market-maker design that lets liquidity providers choose to focus their capital within a specific price range, rather than spreading it evenly across the entire possible price curve, generally earning higher fees when the price stays within their chosen range.
This design improves capital efficiency compared to earlier AMM models, but requires more active management, since a price moving outside a provider's chosen range stops earning fees for them until adjusted.
Examples
- A liquidity provider using concentrated liquidity might focus their capital in a narrow range around the current price.
- Concentrated liquidity improves capital efficiency but requires more active range management.